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Approach :

  • Brief introduction on the need of public finances in creating public policy.
  • Key objectives of India’s green policy.
  • Relationship of green transition with public finance – revenue, expenditure, insurances.

India’s commitment to net zero emissions by 2070 has set the course for a green transition. So, understanding the key factors can help create strategies to deal with the change.

The state of public finance directly impacts the range of policy options – public policy is shaped by the need for more revenues or the ability to spend them.

Key objectives of India’s green policy : (a) eventually reduce C-emissions; (b) make a fast & just transition to greener technologies and (c) invest in adaptation, mitigation & resilience tools.

The relationship of India’s green transition with public finance can be traced to 3 domains – (a) revenue , (b) expenditure , (c) insurances.

Revenue :

Taxes on fossil fuels (crude & coal) is a significant source of public revenue to augment green financing. Around 3-gigatons of C-emissions occur annually by burning these fuels. Even if India ramps up its renewable energy capacity & lays out electric vehicles network, India’s carbon emissions will rise even if the energy intensity of the economy falls. Not in the near future can India replace its reliance on fossil fuels, due to burgeoning energy demands. A Carbon Price (tax collected per unit of C) can create a large revenue pool. Over time, Carbon Price must be so punitive as to make usage of fossil fuels economically unviable.

Expenditures :

Incentives will play a key role in green transition. For e.g. the Budget 2022 has created impact funds that could support new technologies by ‘crowding-in’ private capital into riskier & costlier approaches to green transition like pumped hydro storage, smart grids, etc. It will also help create new sectors for investments & job creation. As the new sectors stabilise, they are expected to start contributing to the government exchequer, creating a sustainable cycle. Also, flexible business models need to be created taking into account the evolutionary policy landscape.

Insurances :

Frequent extreme weather events necessitates a robust insurance framework to be offered to the impacted population. It includes building sustainable infrastructure in currently inhabited zones or creation of new inhabitable locations. Health impacts of climate change require creation of more medical infrastructure. Similarly, recreating infrastructure needs access to public funds. Thus, a significant part of insurance will go into appropriate redistribution policies.

Developing a definition of ‘minimum safety net’ will help in creating specific schemes & projects.

A detailed study is required to quantify the impact of climate change on public finance. Quantification can help in prioritising response to large changes via policy changes. With an active public discussion on various policy choices, government can shape the transition more effectively.

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